Alaska native companies on thin ice

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Companies owned by Alaska natives receive a variety of advantages under a special 8(a) federal contracting program. But policy-makers are considering changing or ending some of those privileges after hearing accusations that the program gives Alaska native-owned companies and their large-business partners unfair advantages.

Rep. Tom Davis (R-Va.), chairman of the House Government Reform Committee, started an investigation into the special contracting program earlier this month. He and Rep. Henry Waxman (D-Calif.), the committee’s ranking Democrat, signed letters to Comptroller General David Walker requesting a Government Accountability Office review of the program.

Davis and Waxman also wrote to Defense Department Secretary Donald Rumsfeld, Secretary of State Condoleezza Rice and Homeland Security Department Secretary Michael Chertoff requesting information about their departments’ use of such contracts.

Critics of the program say one of their main concerns is that no ceiling exists on the dollar value of sole-source awards that Alaska native corporations can receive under the special 8(a) program. For most other companies, any contract worth more than $3 million is subject to competition.

The Alaskan companies can also bring in partners, including large companies, when they perform work under such contracts.

Members of the nonprofit Project on Government Oversight (POGO) are critical of the program. Peter Brand, a homeland security investigator at the watchdog organization, said POGO officials became concerned when Alutiiq, an Alaska native corporation, received a $40 million contract last year to provide security for nuclear facilities in Idaho. Alutiiq partner Wackenhut would have taken part in the work.

"That struck us as just a backdoor way to get Wackenhut into the contract," Brand said.

The contract was withdrawn after Idaho's congressional delegation protested the award on the grounds that Alutiiq lacked sufficient experience in nuclear facility security.

Davis and other proponents of reforming the special 8(a) contracting program need to confront Sen. Ted Stevens, Alaska's senior Republican lawmaker, Brand said. Stevens created the program when he was chairman of the Senate Appropriations Committee, of which he is still a member.

Stevens' original intent was to bring federal contracting money to Alaska, which is not a bad goal, Brand said. "You can't criticize senators and congressmen for trying to bring money back home," he said. "That is part of their job, but this loophole has been around for so long."

Stevens believes that Davis is acting within his purview in asking for a review of the program, and Stevens hopes that native-owned corporations will cooperate fully, said Courtney Boone, Stevens' spokeswoman.

Al Burman, president of Jefferson Solutions and former administrator at the General Services Administration’s Office of Federal Procurement Policy, said no one can predict what Davis' inquiry will uncover or how the program might be changed.

"You want to help folks that are disadvantaged in one way or other," he said. "To the extent that you’re helping all sorts of other people who shouldn’t get that help, that’s something you should look at."

Dan Forman, an attorney at the Washington, D.C., law firm Crowell and Moring, said Alaska native-owned companies should not be able to get noncompetitive contracts that have no value cap. Some contracts have been awarded for "obscenely large amounts," he said.

One company that may come under scrutiny if Davis pursues his goal of reforming the program is Eyak Technology (EyakTek), an Eyak subsidiary. EyakTek is a protégé of reseller GTSI. Two GTSI executives left their jobs for leadership positions at the 8(a) company.

Officials at GTSI and EyakTek maintain that the 8(a) program has served them well and deny that it offers any unfair advantages.

"We've helped Eyak build the foundation of their company," said Paul Liberty, GTSI's vice president of communications. "We've helped them run their financials. We've helped them recruit employees and really build the backbone of the organization."

As a result, he said, "they are doing tremendous work for the government."
Although GTSI offers its services to EyakTek, the revenue from those services is insignificant, Liberty said. Some people believe that large companies are reaping significant financial gains from working with Alaska native companies, he said. "That's not the case with Eyak and GTSI."

GTSI officials have been concerned about the prospect of GTSI losing its small-business status. For several years, forming close partnerships with other small businesses has been part of GTSI’s strategy for minimizing the impact of growth. Promotional materials on EyakTek’s Web site tout GTSI’s ability to provide equipment for agencies that hire the Alaska native company.

EyakTek has been a boon for the Eyak village in Alaska, said James Dunn, who resigned as vice president for bid proposals and technology sales at GTSI to become chief operating officer at EyakTek.

"When we first started the company, it was very important to us to make sure we were giving back to the Alaskan community as best we could, and that meant more than just generating revenue," he said. So far, the company has collected about 12,500 books to build libraries in rural Alaskan communities and raised $7,500 to be used in scholarship funds for Alaska native children, he said.

Dunn said other tribal-owned companies have sole-source contracting privileges similar to those of Alaska native-owned businesses. Native corporations are owned by large groups of shareholders, often 3,000 or more. Dunn said the shareholder structure makes hiring such a company less risky than hiring a more typical 8(a) firm.

"We've put a lot of emphasis on winning competitive procurements and not just running around trying to sole-source everything," Dunn said. "We're well prepared to transition into whatever changes may come."

The relationship with GTSI is a benefit, Dunn said, adding that the company contributes value to nearly one-fourth of EyakTek’s contracts. However, both he and EyakTek's management team intend to make the company competitive.

EyakTek obeys both the letter and the spirit of the program, Dunn said.
"It's disappointing to see all of the concerns raised when there really are so many Alaskan corporations doing everything by the book and in the spirit of the program," he said. "We have really prospered playing by the rules."

Restrictions apply

For a small business owned and controlled by an Alaska Native Corporation to be eligible to participate in a special 8(a) federal contracting program, Alaska natives or their descendants must own a majority of a corporation’s equity and control voting rights to elect the corporation’s directors.